Merko Ehitus
Quarterly report

2014 12 months and IV quarter consolidated unaudited interim report

Tallinn, Estonia, 2015-02-12 07:00 CET --  

COMMENTARY OF THE CHAIRMAN OF THE MANAGEMENT BOARD

The Q4 2014 sales revenue of Merko Ehitus was EUR 70.1 million, with a figure of EUR 252.3 million for the financial year. Net profit grew by 96% in the fourth quarter to EUR 4.8 million and for the financial year by 19% to EUR 12.4 million. The Management Board of AS Merko Ehitus proposes that the shareholders be paid 0.41 euros per share in dividends from retained earnings of previous periods and to reduce the share capital by 0.23 euros per share in 2015.

In 2014, Merko earned 32% of its sales revenue from outside Estonia – Lithuanian sales doubled and Latvian sales increased by more than half compared to 2013. Merko sold 395 apartments in 2014 – 132 apartments more than the year before – as a result of which sales revenue in the real estate development segment increased by 48%.

We can be satisfied with the 2014 results, which were achieved in what continues to be a complicated market situation. Above all, improved profit figures, growth in Latvia and Lithuania and apartment sales in Estonia are reason to cheer. As expected, the decline in construction volumes in the engineering and road construction sectors continued, due to the decreased amount of EU-funded projects, even though the profitability of these segments exceeded our expectations.

2015 will be a difficult year in terms of public sector orders, a certain pickup can be expected starting in 2016. For that reason, our priority in all three Baltic states is good cooperation with private sector customers, to whom we want to offer high-quality and optimum construction solutions and an efficient construction process. The overall weak economic growth and low investor confidence in the Baltic states and the region also leaves an imprint on the construction market. We see growth opportunities for Merko opening up in 2015 mainly on the Lithuanian construction market, and also in apartment development, where we plan to invest about EUR 45-55 million in the coming year. The volume of orders will presumably not decline in electrical construction either, which is an important sector for us.

The Merko Ehitus group had a 12-month gross margin of 9.8% and net profit margin of 4.9%, which are both better than last year. 2014 profit before taxes was EUR 13.3 million; and EUR 5.3 million in the fourth quarter. The company’s net profit for 2014 was EUR 12.4 million and EUR 4.8 million in the fourth quarter, representing growth of 19% and 99%, respectively, compared to the previous year.

In the fourth quarter, group companies signed new agreements worth EUR 62.9 million and the volume of new contracts in 2014 totalled at EUR 170.4 million. As of 31 December 2014, the group had a secured order book balance of EUR 179.1 million.

The Management Board of AS Merko Ehitus proposes to pay shareholders EUR 7.3 million (0.41 euros per share) in dividends from retained earnings of previous periods, resulting in a dividend rate of 58% in 2014. Considering the outlook for 2015 and to support the return on equity, the Management Board also proposes reducing share capital by a total EUR 4.1 million by way of reducing the book value of shares (0.23 euros per share). These proposals will be submitted to the annual general meeting of shareholders for approval to be held on 29 April 2015.

The growth of sales revenue in the real estate segment as well as the proportional growth went according to plan and is the result of the investments made into the segment in the past few years. In 2015, we expect the apartment market to maintain a stable price level, buyers will continue to be selective and focus on premium offers, where we consider our position to be strong. We also take into consideration the lengthening of apartments sale periods.

In 2014, Merko sold 395 apartments with a total price of EUR 39.4 million; including 160 apartments worth EUR 16.0 million in Q4 (both figures exclusive of VAT). The sales revenue in the real estate development segment has grown 48% compared to the same period last year and the share of the segment’s sales revenue in the group’s total revenue has increased to 18%.

OVERVIEW OF THE 12 MONTHS AND IV QUARTER RESULTS

PROFITABILITY
Gross margin in 12M was 9.8% (12M 2013: 8.6%), which has increased by 13.3% compared to the same period last year. Profit before tax in 12M 2014 was EUR 13.3 million (12M 2013: EUR 11.1 million), which is equivalent to a profit before tax margin of 5.3% (12M 2013: 4.2%). Q4 profit before tax was EUR 5.3 million (Q4 2013: EUR 2.4 million). Net margin increased to 4.9% (12M 2013: 4.0%). Net profit in 12M was EUR 12.4 million (12M 2013: EUR 10.4 million). Q4 net profit was EUR 4.8 million (Q4 2013: EUR 2.5 million).

REVENUE
Revenue in 12M 2014 was EUR 252.3 million (12M 2013: EUR 262.7 million), which has decreased by 4.0% compared to the same period last year. Q4 revenue was EUR 70.1 million (Q4 2013: EUR 64.9 million). The share of revenue earned outside of Estonia has incresed in 12M 2014 to 32.3% (12M 2013: 19.3%) and the number of apartments sold in 12 months of 2014 (395 pcs, revenues of EUR 39.4 million) has increased by 50.2% (12 months of 2013: 263 apartments, revenues of EUR 28.3 million).

CASH POSITION
At the end of the reporting period, the group had EUR 51.6 million in cash and cash equivalents and equity EUR 127.0 million (51.0% of total assets). Comparable figures as at 31 December 2013 were accordingly EUR 46.6 million and EUR 121.1 million (50.9% of total assets). As at 31 December 2014 the group had net debt of negative EUR 13.9 million (31 December 2013: negative EUR 11.2 million).

SECURED ORDER BOOK
In Q4 2014, group companies signed new contracts in the amount of EUR 62.9 million (Q4 2013: EUR 48.6 million). 12M 2014 new contracts signed in amount of EUR 170.4 million (12M 2013: EUR 254.3 million). As at 31 December 2014, the group’s secured order book stood at EUR 179.1 million (31 December 2013: EUR 213.7 million).

PROPOSAL FOR DISTRIBUTION OF PROFITS AND REDUCTION OF SHARE CAPITAL
The Management Board proposes to distribute to shareholders EUR 7.3 million (EUR 0.41 per share) in dividends from retained earnings in 2015. This is equivalent to a 58% dividend rate for 2014. The Management Board also proposes to reduce the share capital by a total of EUR 4.1 million (EUR 0,23 per share) by way of reducing the book value of shares.

OPERATING RESULTS

Revenue and gross profit

Merko Ehitus group generated a total of EUR 252.3 million in revenue in 12 months of 2014 (12 months of 2013: EUR 262.7 million). 67.7% of the revenue was generated in Estonia, 27.2% in Latvia and 5.1% in Lithuania (12 months of 2013: 80.7% in Estonia, 16.9% in Latvia and 2.4% in Lithuania). Compared to the 12 months of 2013 the group revenue has decreased by 4.0%. In the 12 months of 2014 the share of Latvian revenue has increased from 16.9% to 27.2%. Revenue in Q4 2014 was EUR 70.1 million, which has increased 8.0% compared to the previous year (Q4 2013: EUR 64.9 million).The main changes in the revenue structure compared to the same period last year, can be mainly attributed to projects pursued in the general construction and real estate development segment. At the same time there has been a significant reduction in sales revenue from engineering construction and road construction segments, which is primarily due to the end of major projects financed from EU structural funds and the reduced project volumes. This trend was similar throughout the whole year.

In 12 months of 2014 the group’s gross profit from development and construction activities totalled EUR 24.7 million (12 months of 2013: EUR 22.7 million) and in Q4 2014 EUR 8.5 million (Q4 2013: EUR 5.4 million). The 12 months gross profit margin (9.8%) has increased compared to the same period last year (12 months of 2013: 8.6%). The growth of the profit margin has been supported by growth in the volumes of the real estate development segment. Simultaneously profitability has been negatively impacted by a growth in volumes in the lower-profitability general construction segment. Additionally maintaining the stability of profit margins during the 12 months of 2014 both in the road construction and civil engineering segments has been important, despite the decline in sales volumes, that has been supported by the decrease in input priced, which may not continue in 2015. The scarcity of projects and the ever-tightening competition in the construction sector poses a great challenge in the maintaining of the current gross profit margin for new procurements in all segments, but especially in general construction, where the number of companies participating in tenders and the risk of low pricing bids is high.

Profit before tax and net profit

In 12 months of 2014, the group’s profit before tax totalled EUR 13.3 million and net profit attributable to equity holders of the parent was EUR 12.4 million as compared to the pre-tax profit or EUR 11.1 million and net profit attributable to equity holders of the parent of EUR 10.4 million in 12 months of 2013. Group’s net profit margin was 4.9% (12 months of 2013: 4.0%). The net profit for the 12 months of 2014 was affected by the income tax expenses paid in the first quarter of 2014 on the dividends received from OÜ Gutsaf Tallinn in the amount of EUR 0.3 million. This increases the income tax expenses as extraordinary one-off item, compared to the 12 months of 2013.

In Q4 of 2014, the group’s pre-tax profit totalled EUR 5.3 million and net profit was EUR 4.8 million as compared to the pre-tax profit of EUR 2.4 million and net profit of EUR 2.5 million in Q4 of 2013. Both the group’s quarterly net profit (EUR 4.8 million) and the net profit margin (6.8%) have increased compared to the same period last year (12 months of 2013: EUR 2.5 million and 3.8%, respectively).

In the second quarter of 2014, the group paid EUR 7.3 million in dividends, which incurred no additional income tax expense in connection with previously received and taxed distribution of profits from subsidiaries. The situation in the third quarter of 2013 was alike, when the group paid EUR 5.3 million in dividends.

Business segments

The group operates mainly in Estonian, Latvian and Lithuanian market through its subsidiaries and depending on the country provide services across the following business segments: general construction, civil engineering (including electrical and external networks), road construction, real estate development (including apartment development and sales, long-term real estate investments and commercial real estate projects) and other comprising sale of raw materials obtained from pit mining, equipment lease, consulting and construction supervision. The groups management structure is country based and is in turn divided by business segments.

General construction

In the 12 months of 2014, the revenue of the general construction segment was EUR 110.5 million (12 months of 2013: EUR 86.6 million), having increased by 27.7% from the same period last year. In this segment, the group earned a gross profit of EUR 6.1 million for 12 months (12 months of 2013: EUR 0.5 million gross loss). The segment continues to be mainly influenced by the pressure on the margins exerted by tightening competition. In the 12 months the revenue of the general construction segment formed the largest proportion in the group’s revenue with a 43.8% share. This proportional increase was expected, especially given the knowledge that the volumes in the civil engineering and road construction segments have decreased.

The gross margin of the general construction segment in 12 months of 2014 was 5.5%, which was supported by the fact that the previously forecasted risks did not materialise in projects nearly or fully completed in the reporting period. This exerted an one-time effect on the results, both in Q3 and Q4. The 2013 comparison base was also influenced by a major one-off loss from one renovation project in the year’s last quarter. We have seen rise in the proportion of private sector orders starting from 2013, and the same tendency, although to a lesser extent than expected, has continued in the 12 months of 2014. With regard to projects in progress in the general construction segment as at the end of year, private sector orders constitute approximately 3/4.

Civil engineering

The revenue of the civil engineering segment amounted to EUR 63.6 million in the 12 months of 2014 (12 months of 2013: EUR 94.5 million), which is 32.7% less than in 2013. The decrease from the previous year is mainly due to a drop in the volume of external pipeline projects. If the civil engineering segment revenues of 12 months of 2013 formed the largest proportion in the group’s revenue (12 months of 2013: 36.0%), then during 12 months of the current year the segments revenues formed 25.2% of total revenue being down 30.0% compared to the previous year. The 12 month gross profit of the civil engineering segment amounted to EUR 6.1 million (12 months of 2013: EUR 12.5 million) and the gross profit margin was 9.6% (12 months of 2013: 13.2%), which decreased by 27.7% compared to the same period previous year. Considering the declining volumes in the segment we see this as a very good and strong outcome. We continue to closely monitor the changes in the volumes, to maintain an effective cost base.

The civil engineering segment includes challenges, primarily in connection with the end of the 2007-2013 EU budgeting period and due to the fact that the pace of launching new projects has decreased, this applies particularly to water management projects.

Road construction

The revenue of the road construction segment amounted to EUR 30.9 million in the 12 months of 2014 (12 months of 2013: EUR 49.5 million), which means a 37.5% decrease from the same period 2013. In the 12 months of 2014, the segment earned a gross profit of EUR 4.6 million (12 months of 2013: EUR 5.9 million), which yields a gross profit margin of 15.0% (12 months of 2013: 12,0%). The drop in revenue has been affected the most by the lack of large-scale construction projects (such as the last year’s Ülemiste junction in Tallinn) in the contracts portfolio of the group in 2014. In the 12 months of 2014, the growth of profitability in the road construction segment was supported largely by an increase in the volume of small-scale road construction and repair works with higher-than-average profitability compared to the same period last year when the number of similar contracts was smaller. In addition, the results of Q4 2014 were influenced by a relatively mild December compared to 2013.

Real estate development

A total of 395 apartments were sold in 12 months of 2014 at the total value of EUR 39.4 million (excl. VAT), compared to 263 apartments and EUR 28.3 million in 2013. In Q4 of 2014 a total of 160 apartments were sold at the total value of EUR 16.0 million (excl. VAT), (Q4 2013: 98 apartments and EUR 11.0 million). 12 months real estate development segment revenues have increased 47.6% compared to the same period last. The share of revenue from the real estate development segment also increased in the 12 months to 18.1% of the group’s total revenue (12 months of 2013: 11.8%), which has been planned and occasioned by the strategic decisions made in 2012 to increase the segment’s investments into various new real estate development projects.

In 12 months of 2014, the group has earned EUR 1.4 million of revenue from the sale of properties (12 months of 2013: EUR 0.3 million). Q4 revenue from the sale of properties was EUR 0.0 million (Q4 2013: EUR 0.0 million).

The Q4 2014 profitability of the segment was positively impacted by a net change in impairments of development projects and immovable properties amounting to EUR 0.5 million, which has an one-off nature.

At the end of the period, Merko Ehitus group’s inventory comprised 110 completed (92 in Estonia, 16 in Latvia and 2 in Lithuania) and 82 apartments under construction (39 in Estonia, 34 in Latvia and 9 in Lithuania), where a preliminary agreement had been signed but where the sale had not yet been finalised and delivered to customers. The reasoning is that the development site is still under construction or the site was completed at the end of the reporting period and the sales transactions have not all been finalised yet.

As at 31 December 2014, Merko Ehitus group had a total of 326 apartments for active sale (as at 31 December 2013: 300 apartments), for which there are no pre-sale agreements and of which 50 have been completed (22 in Estonia, 24 in Latvia and 4 in Lithuania) and 276 are under construction (128 in Estonia, 91 in Latvia and 57 in Lithuania).

In 12 months of 2014, we launched the construction of a total of 369 new apartments in the Baltic States (12 months of 2013: 409 apartments). In the 12 months of this year, the group has invested a total of EUR 46.9 million in new development projects launched in 2014 as well as projects already in progress from previous year. We will continue to invest in residential real estate projects and depending on the apartment market developments in 2015, the group plans to launch the construction of approximately 500-550 new apartments in the Baltic States. In 2015, the group’s planned investments in both development projects initiated in the previous years and new projects to be launched in 2015 will be in the range of EUR 45-50 million.

One of our objectives is to keep a moderate portfolio of land plots to ensure stable inventory of property development projects considering the market conditions. In the 12 months of 2014, the group has purchased new land plots in Lithuania at an acquisition cost of EUR 3.2 million (12 months of 2013: EUR 2.1 million). Also in the second quarter, the group realized an option agreement to acquire the Rästa 18 land plot in Tallinn in the amount of EUR 1.2 million. The group is searching for new land plots for real estate development purposes primarily in Estonian and Lithuania.

Secured order book

As at 31 December 2014, the group’s secured order book (without own developments) amounted to EUR 179.1 million as compared to EUR 213.7 million as at 31 December 2013. The secured order book excludes the group's own residential development projects and work related to developing real estate investments.

In fourth quarter of 2014, EUR 62.9 million worth of new contracts were signed (without own developments) as compared to EUR 48.6 million in same period last year. The value of new contracts signed (without own developments) in the 12 months of 2014 amounted to EUR 170.4 million (12 months of 2013: EUR 254.3 million). The volume of contracts signed in 2013 were impacted significantly by the large-scale contracts entered into in Latvia in the second half-year of 2013 such as Polipaks NT manufacturing and logistics center and Liepaja concert hall, which are also reflected in the 2014 results. No contracts of this volume were entered into in Latvia in 2014.

Of the contracts signed in the 12 months of 2014, public and private sector orders accounted for an equal proportion, above all due to the volume of contracts signed with private clients in the last quarter. Nevertheless, in 2014 the company did not manage to garner as much work from private sector customers as it had envisaged. The general construction segment is seeing the stiffest competition, and is where competitors are making aggressive offers, incurring risks for both customers and contractors. Considering the end of the previous EU funding period and the beginning phase of the current EU funding period, one can forecast the volume of public procurements to stay at the previous years level or a slight decline for 2015. We forecast that the volume of public procurements will start to increase at the end of 2015 or at the beginning of 2016. In this respect, it continues to be a great challenge to maintain the group’s secured order book at the level of 2014 or growing it.

Traditionally the share of Estonian construction activity has been the highest in the group's revenues. Given the weak growth outlook of the Estonian construction market, the group's goal is to increase the volume of construction orders from outside Estonia. Thus, we are closely monitoring the development and opportunities both in the Baltic States and the Nordic countries. In 2014 AS Merko Ehitus Eesti has selectively and on project basis started to participate in public procurements in Finland, Sweden and Norway in order to gain experience and sufficient knowledge in the qualification conditions, requirements established and risks associated in these countries.

Cash flows

The liquidity of the group is strong and the cash position is stable. As at 31 December 2014 the group had cash equivalents in the amount of EUR 51.6 million (31.12.2013: EUR 46.6 million). The group's cash level has strengthened compared to the same period last year.

The 12-month cash flow from operating activity was positive at EUR 14.5 million (12 months of 2013: positive EUR 19.7 million), cash flow from investing activity was negative at EUR 1.9 million (12 months of 2013: negative EUR 1.3 million) and the cash flow from financing activity was negative at EUR 7.6 million (12 months of 2013: negative EUR 7.0 million).

The cash flow from operating activity was mostly influenced by the operating profit EUR 14.0 million (12 months of 2013: EUR 12.3 million), by the negative change in receivables and liabilities related to construction contracts recognised under the stage of completion method EUR 0.2 million (12 months of 2013: positive change of EUR 4.7 million), by the positive change in provisions EUR 1.3 million (12 months of 2013: positive change of EUR 1.6 million), by the positive change in trade and other receivables related to operating activities EUR 12.7 million (12 months of 2013: negative change of EUR 6.2 million), by the negative change in inventory EUR 14.8 million (12 months of 2013: negative change of EUR 4.9 million), and by the positive change in trade and other payables related to operating activities EUR 0.3 million (12 months of 2013: positive change of EUR 10.2 million, incl. significant positive inflow from the advances for real estate development projects). The cash flows from operating activities of the reporting period were negatively influenced mainly by changes in inventories (EUR 14.8 million) which are due to group’s increased apartment development volumes and the gradual completing thereof (Grostonas 21 in Riga and Kentmanni 6 in Tallinn) as well as from the acquisition of new land plots. The negative impact is partly positively offset from the prepayments received from pre-sales of apartments and from construction service customers, which still remain EUR 9.9 million lower than in the same period last year.

The group’s cash flows from operating activities continue to have contracts (incl. both government and private sector) with long payment terms (by contract, an average of 56 days after registered delivery of the work) and there is an persistent burden on working capital, including optimal management of cash flows. This is especially true, considering the increase in Latvian construction volumes and the need for additional working capital. To support cash flows arising from operating activity, the group has been prudent in raising additional external capital, including factoring. At the same time, the debt ratio has remained at a moderate level (15.1% as at 31.12.2014; 14.8% as at 31.12.2013).

Cash flows from investment activities include negative cash flow from the cash balance excluded from the group in connection with the sale of subsidiary Gustaf Tallinn OÜ in the amount of EUR 0.4 million, but also negative cash flow from the acquisition of minority shareholding in subsidiary AS Gustaf in the amount of EUR 0.1 million and the acquisition of subsidiary UAB Timana (related to the purchase of a new land plot in Lithuania) in the amount of EUR 0.3 million. Cash flows from investment activities was additionally influenced by the negative cash flow from the acquisition of non-current asset in the amount of EUR 1.5 million (12 months of 2013: EUR 0.8 million) and the positive cash flow from the sale of non-current assets in the amount of EUR 0.1 million (12 months of 2013: EUR 0.9 million). Cash flows from investment activities in 12 months of 2013 was negatively impacted by the acquisitions and improvements of real estate investment in the amount of EUR 1.1 million and by the acquisition of other investments in the amount of EUR 0.3 million. The group mainly invested in non-current assets for the purpose of renewing its fleet of machinery in the road construction segment.

The largest single negative item in cash flows from financing was the dividend payment of EUR 7.3 million (12 months of 2013: EUR 5.3 million) and the premature repayment of a working capital loan in the amount of EUR 3.5 million, instead of which the group entered into an overdraft contract with an overall limit of EUR 3.5 million. Project specific loans obtained using investment property as collateral were repaid in the amount of EUR 0.6 million (12 months of 2013: positive cash flow in net amount of EUR 1.9 million), net of loans received and loans repaid in connection with development projects amounted to positive cash flow of EUR 4.9 million (12 months of 2013: negative cash flow of EUR 1.0 million), factoring in the amount of EUR 0.0 million (12 months of 2013: negative cash flow of EUR 1.5 million) and finance lease principal repayments of EUR 1.1 million (12 months of 2013: EUR 1.2 million). The group has not used bank loans to finance all of the ongoing development projects – and this is the case particularly in Estonia, where many advance sales were agreed in the early phase of construction.

The Q4 2014 cash flow from operating activity was positive at EUR 14.7 million (Q4 2013: positive EUR 7.9 million), cash flow from investing activity was negative at EUR 0.3 million (Q4 2013: negative EUR 1.1 million) and the cash flow from financing activity was negative at EUR 3.2 million (Q4 2013: positive EUR 0.8 million).

Due to the seasonal nature of construction activity, the quarterly cash flows from operating activities were positive primarily due to a drop in receivables from construction work customers, which on the other hand was negatively offset by the increase of payments to subcontractors and receivables calculated using the percentage of completion method.

The quarterly cash flow from investment activities was negative primarily due to the acquisition of non-current asset in the amount of EUR 0.4 million, which is mainly related to the renewal of equipment in the road construction segment as well as renewal of the car fleet.

The quarterly cash flow from financing activities was negative primarily due the net negative cash flow of EUR 2.8 million of loans received and loans repaid to finance the construction costs of development projects.

Dividends and dividend policy

The distribution of dividends to the shareholders of the company is recorded as a liability in the financial statements as of the moment when the payment of dividends is approved by the company’s shareholders.

At the meeting held on 8 April 2013, the Management Board and Supervisory Board of AS Merko Ehitus reviewed the company’s strategic development trends and approved the long-term financial objectives until 2018, under which a new objective of paying the shareholders 50-70% of the annual profit as dividends was established. The achievement of this objective is an important priority for the group.

The annual general meeting of shareholders of AS Merko Ehitus held at 30 April 2014 approved the Supervisory Boards proposal to pay the shareholders the total amount of EUR 7.3 million (EUR 0.41 per share) as dividends from net profit brought forward, which is equivalent to a 70% dividend rate and a 5.7% dividend yield for the year 2013 (using the share price as at 31 December 2013), (comparable figures in 2013 were accordingly: EUR 5.3 million (EUR 0.30 per share) as dividends, which is equivalent to a 70% dividend rate and a 5.1% dividend yield (using the share price as at 31 December 2012)).

According to the Estonian Income Tax Law §50 section 1¹ AS Merko Ehitus could pay these dividends without any additional income tax expense and liabilities occurring due to previously received and taxed distribution of profits from subsidiaries. The dividend payment to the shareholders took place on 20 May 2014.

The Management Board proposes to pay the shareholders EUR 7.3 million as dividends from net profits brought forward (EUR 0.41 per share) in 2015, which is equivalent to a 58% dividend rate and a 5.7% dividend yield for the year 2014 (using the share price as at 31 December 2014). Taking into account the dividends already paid to the parent company and planned to be paid by foreign subsidiaries in early 2015, the group will incur income tax expenses of approximately EUR 0.9 million in 2015 in Estonia in connection with disbursement of dividends.

Share capital reduction

The Management Board proposes to reduce the share capital by EUR 4 071 000 (EUR 0.23 per share).

Pursuant to subsection §50 section 2 of the Income Tax Act in force in Estonia, income tax does not have to be paid on the portion of payments made from the equity upon reduction of the share capital or contributions, upon redemption of shares or contributions or in other cases, and on the portion of the paid liquidation distributions made by way of previous monetary contributions. About EUR 4.0 million in the said monetary contributions have been made in AS Merko Ehitus.

Based on the proposal of the management board, share capital would be reduced by EUR 4,071,000 (EUR 0.23 per share), from the amount EUR 12.0 million to EUR 7.9 million. Share capital is reduced by way of reducing the book value of the shares and as a result of the reduction the book value of one share will be reduced from EUR 0.677966 to EUR 0.447967; the number of shares will remain the same – 17,700,000 shares.

Pursuant to the articles of association of Merko Ehitus, the minimum share capital of the company is EUR 6.0 million and the maximum share capital is EUR 24.0 million. The new share capital will amount to EUR 7.9 million, which is in line with the company’s articles of association.

Considering the perspectives of the Baltic construction market in the coming years and the related need for capital by the group, the share capital would be reduced in order to improve the group’s capital structure and support return on equity. AS Merko Ehitus lacks the need to possess share capital in the existing amount and the requirements that legislation imposes on share capital will also be fulfilled in the case of the reduced share capital.

The proposal to reduce share capital will be submitted to the annual general meeting of shareholders for approval on 29 April 2015. If the decision is positive, the reduction of share capital – EUR 4,071,000 – will be paid to shareholders by the term specified by law, which would probably fall within the second half of 2015.

Ratios
(attributable to equity holders of the parent)

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
unaudited
in thousand euros

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
unaudited
in thousand euros

Interim report and the investor presentation are attached to the announcement and are also published on NASDAQ Tallinn and Merko’s web page (group.merko.ee).

Signe Kukin
Group CFO
AS Merko Ehitus
+372 650 1250
signe.kukin@merko.ee

AS Merko Ehitus (group.merko.ee) comprises the leading Estonian construction company AS Merko Ehitus Eesti, the Latvian market based SIA Merks and the Lithuanian market based UAB Merko Statyba as well as the group’s real estate development business unit together with companies holding real estate properties. As at the end of 2014, the group employed 765 people and the 2014 revenue amounted to EUR 252.3 million.